PSNC 2011: Is My Plan Design Effective?

July 14, 2011 ( – Another way for sponsors to ask “Is my plan design effective,” is to ask “Are participant behaviors effectively improving their retirement security,” according to Joseph Ready, EVP, Director of Institutional Retirement and Trust, Wells Fargo, speaking to attendees of the PLANSPONSOR National Conference.

Ready notes that the traditional measures of plan success are participation rate, deferral rate, and investment diversification. While these are good, he contends sponsors need to go deeper, looking at participant demographics and personas.  

Aside from the three traditional measures, benefits committees should measure whether employees are on track for a secure retirement. Sponsors are focused on maximizing the benefit for employees, but if they look the plan as participants themselves, they would say success is saving enough to get a paycheck in retirement or saving enough so as not to outlive assets.  

First sponsors should define what it means for employees to maximize the use of the plan: they are participating, they are deferring enough, and they are appropriately diversified. Sponsors should measure how many employees are doing all three. In addition, sponsors should measure how many employees are on track to replace at least 80% of income in retirement. Ready says that is just a benchmark, a place to start, employees may need more or less.  

Specifically, Wells Fargo’s Plan Health Index measures employees that are optimizing plan use, by identifying how many are participating, how many are deferring at 6%, and by using an algorithm to determine the appropriate diversification for specific participant groups then identifying how many are adequately diversified. Increasing the number of employees that are doing all three will get the plan closer to the goal of 80% income replacement closer.

Beyond that, according to Ready, retirement preparedness will vary with participant demographics, such as age, gender, division in the company (white collar and blue collar differ in how they react with plan), tenure with the company, and compensation. When measuring success sponsors need to cut data along each of these demographics, Ready contends.  

Also look at personas, who are the investors in the plan. Wells Fargo has identified six different personas: relationship driven delegator who says you drive and tell me how I’m doing once in a while; confident collaborator who won’t turn over the keys, but wants someone to consult on and validate decisions; conservative distributor who is always nervous and afraid of risk; conservative avoider who is overwhelmed, confused, and paralyzed; and self directors who want to do it on their own.  

According to Ready, understanding personas will give sponsors a clue to how participants will interact with them and the plan. Sponsors want to make sure all employees have access to the plan that they will use. As examples, Ready said, self directors love the Web, and collaborators may want face to face interaction or even social media.  

These measures will drive plan design features – the use of auto features, target-dates, and match - and participant education efforts that are needed to make the plan more successful.  

Finally, Ready advises that if sponsors want to know how their plans are doing compared to others, they should use industry reports such as the DC Survey by PLANSPONSOR.  But, he warns, don’t just look at broad industry benchmarks, sponsors should look at data for plans in their same industry and with the same demographics, including participant demographics and plan size. In addition, he contends, showing committees what other plans in the industry are doing, so the company can be competitive for talent, often overcomes differing opinions about plan design features.  

Audio of the presentation will be available at